A Check On The Housing Industry

There is, of course, a lot of attention being paid about what's happening in Richmond because millions of other American homeowners around the country are also underwater - again, homes that are worth less than their mortgages. We're joined now by NPR correspondent Chris Arnold, who's been following all of this. Good morning.

CHRIS ARNOLD, BYLINE: Good morning, Renee.

MONTAGNE: How many homeowners are still underwater? I gather with the housing market coming back, this is changing - for the better.

ARNOLD: Yes. Absolutely. There's a lot of changing and, you know, during the worst of the housing crash there were close to 20 million Americans who were underwater, but over the past year, with home prices rising, that certainly has been helping. We're down to about 10 million underwater borrowers as of March, 8.5 million as of June.

Now, that's still a lot of people. It's actually 15 percent of all homeowners with mortgages, so it's not a small number. But the trend is moving in the right direction. Now, according to one firm, Moody's Analytics, about two-thirds of that trend is due to rising home prices, but the other third of the trend is just due to the fact that, look, we've been foreclosing on a lot of people and if you lost your house, you're no longer considered an underwater homeowner.

MONTAGNE: Underwater. Okay. Well, let's talk about foreclosures. Are we getting through the worst of the housing crash in that area as well?

ARNOLD: It's a mixed bad. Some things are improving. You know, we talk about home prices rising, that's good. And the story we hear most often right now is about how the housing market's coming back and more people are getting construction jobs and all that's a very good thing and all that's true. But it's also true that upwards of 2.5 million Americans are still facing foreclosure, and many of those homeowners, they do not have to get foreclosed on.

They should qualify for a federal program to modify their loan and lower their payments so they can stay in their houses, and you know, that would help neighborhoods like Richmond, which we just heard about in Richard Gonzales's piece - that is, if the programs that have been put in place to help were working as well as they could be.

MONTAGNE: Well, talk to us about that. I mean how well are they working? We've heard lots of stories that they're not.

ARNOLD: Yeah, this has been really messy. We've done stories at NPR about people who absolutely should have qualified for that federal program to keep their house, but their bank forecloses on them anyway, and that kind of stuff is still happening. The Consumer Financial Protection Bureau this year said in too many cases the banks are still foreclosing improperly. There's also now a federal monitor that oversees the banks, and this came out of lawsuits from state prosecutors from - I think it was just about every single one of the 50 states sued the banks.

And now there's this federal monitor. And he came out in June and said, look, Bank of America, JP Morgan, CitiGroup, Wells Fargo, all the biggest banks that deal with mortgages, they're all failing to comply with key provisions of the settlement that was aimed at preventing foreclosures and now the attorney general of New York says he's threatening to sue the banks all over again, so arguably this is still a very big mess.

ARNOLD: Yes. This is not to say that everything is completely terrible. You know, with home prices rising, that helps. With people getting more jobs, that's going to get them out of tough situations. And another thing we haven't talked about is that when banks do loan modifications now, those modifications are much higher quality. That means there are lower defaults.

And when a homeowner's actually able to get their loan modified by the bank, they can afford the new payment. They can stay in the house. They can become a responsible home owner again, and that's good for the whole financial system. Regulators say that we should just be seeing more of that.